USD/CAD – Buy or Sell?

Fundamentally, USD/CAD should be near a bottom. Oil prices have had a strong run and the move has taken the commodity to the 100-day SMA. This means oil is near a peak. Considering that crude prices has been the primary driver of CAD flows, a reversal in oil would mean a rally in USD/CAD. Canadian data has also been terrible with employment and trade conditions weakening. Chances are next week’s retail sales report will be soft as well.

However technically, the recent decline in USD/CAD has taken prices below the 50-day SMA and the 23.6% Fibonacci retracement of this year’s decline which signals the possibility of a steeper drop towards 1.28. A close below the 100-day at 1.2940 would be needed to confirm the renewed downtrend.

So how do we trade USD/CAD? The best tactic is to wait for confirmation because when USD/CAD turns it is typically a multi-day affair, so there’s no need to “pick” the ultimate bottom. If USD/CAD closes below 1.2940 in a meaningful way, then its headed for 1.28. If it rises back above 1.30 however, then the next target will be 1.32.